Wednesday, January 29, 2014

Silly Walmart And Other Stories.

First, I would like to talk about the Walmart article. It seems to suggest that Walmart got almost everything right in its supply chain: from demand forecasting to ensure that adequate quantities of inventory got to its store locations, to good inventory management practices ensuring timely resupply orders – all operations optimized to laser-like precision. But… in the end it failed to foresee or plan for how its staffers would actually get the merchandize languishing in backrooms to the shelves? Hmm.

The causal relationship between out of stock and layoffs developed in the article is flimsy at best and not very well developed. How much of the stock out costs that have been calculated in the article can be traced solely to the inadequate staffing at stores, right at the end on the downstream end of the supply chain, and how much of it can be attributed to other factors? The comments section for that article was very interesting. One of the comments was by a Walmart store manager explaining how stock outs occur most frequently at the beginning of the month when low-income families get their SNAP (Supplemental Nutrition Assistance Program) benefits, which would seem to suggest that these stock outs occur due to product flying off the shelves. This creates a problem where there isn’t enough staff on hand to rapidly replenish the shelves from the back room. This is a problem, but then I suppose most businesses would like to be in a position where they have to rapidly replace product on their shelves. As one meme would have it:





Going off on a tangent, the Walmart website says that, “today, Walmart operates more than 11,000 retail units under 69 banners in 27 countries” (http://corporate.walmart.com/our-story/our-business/locations/). It would have been interesting if the author of the article had commented on whether there was a similar trend in other locations around the world. With locations in Africa and South East Asia, where labor costs would be lower, I imagine it would not be as big a problem as here in the United States.

Summing up on the Walmart article, in my opinion, it is somewhat na├»ve to assume that an organization like Walmart, known to be smart about its supply chain planning, using optimization methods that factor in variables like shortest delivery routes, would overlook something as simple as investing another $448 million in additional staff at the stores for a return of $ 1.29 – 2.58 billion.

Moving on to the article on building flexible supply chains for uncertain times, with its emphasis on having an agile, dynamic, proactive, collaborative and responsive supply chain planning process that revolves around a low-response time decision-making process that responds quickly to demand volatility by having cross functional teams, that provide a cohesive and organization-wide, holistic response to changing market dynamics and price fluctuations across supply chain components, made for sensible reading. Mostly – except for the advice to “…deal with changing conditions by making production processes more flexible—shifting manufacturing locations quickly as shipping costs change, for example.” Written in March 2009, with the global crisis of 2008 still underway, and with most organizations engaged in aggressive cost reduction strategies, this sage’s advice to them, about potentially investing millions in moving capital equipment around or setting up new manufacturing locations is a bit hard to swallow.

Furthermore, this article and the article, Ten Ways To Improve Inventory Management, for me, overlook a critical factor – critical for any supply chain that is global at least. And that is the relationship between international trade dynamics and inventory management – how one impacts the operational effectiveness of the other.

In The World Is Flat, Thomas L. Friedman talks about globalization forces and technology as one of the great enablers that flattened the world, making it more interconnected and transparent across borders. There are other factors which have contributed to the globalization drive. The work done by organizations such as the World Trade Organization, United Nations Conference on Trade and Development, World Bank, along with the evolution in global trade in terms of bilateral and regional trade treaties, free trade agreements and the rationalization of tariff structures (which have traditionally been used as a tool of trade regulation by countries, geared towards protectionist policies). All of these factors combined have given us a world where trade across borders – the movement of goods and, today, even services, has become more fluid.


Resultantly, organizations have been able to take advantage of expanding globally, and by extension, taking their supply chains across borders to take advantage of economies of scale made possible due to labor differences – both in cost and productivity. However, there still remain many impediments to a truly free global market, unconstrained by borders. Different rules and regulations surrounding import / export requirements, inefficiencies in say port operations, geopolitical uncertainty, border delays, inadequate infrastructure and even blatant and ubiquitous corruption, are just some of the factors that play a major role in hampering the free flow of goods and services through global supply chains – and by extension have a cascade effect on how nimbly organizations with global supply chains are able to plan and manage their inventories. 

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